Illinois owes $2.2 billion to feds for unemployment benefits

Tim Landis

Friday

Aug 20, 2010 at 12:01 AMAug 20, 2010 at 8:12 PM

Illinois has borrowed more than $2.2 billion from the federal government since July 2009 to pay unemployment benefits. The good news is the state has not had to borrow since April, and the loan is interest-free for now.

Illinois has borrowed more than $2.2 billion from the federal government since July 2009 to pay unemployment benefits.

The good news is the state has not had to borrow since April, and the loan is interest-free for now.

“We really do access it as needed. It’s a day-to-day decision, five days a week,” Illinois Department of Employment Security spokesman Greg Rivara said Thursday.

Illinois has plenty of borrowing company. According to the National Conference of State Legislatures, 31 states and the Virgin Islands had borrowed $38.7 billion to pay jobless claims as of this week.

Several states exceeded Illinois borrowing, topped by California at nearly $7.5 billion.

Unemployment trust funds are paid for through withholding taxes on employers, but Rivara said there have been minimal rate changes up to now in Illinois because rates are based on a three-year payment history.

The system is designed to ease rates during a down economy, when claims are high, and for rates to rise in good times to rebuild the fund, he said. Rates for 2010 are lower than those in 2007, while the taxable wage-base is higher.

Interest free, for now

The federal government suspended interest on loans to states for jobless benefits as part of the national stimulus legislation, but that exemption is scheduled to expire in January barring a congressional extension.

Several states, including most recently Pennsylvania, already are struggling with ways to build unemployment trust funds. But the basic options — raise rates on employers or cut benefits in an already-struggling economy — are a tough political sell, said Marc Katz, congressional and public affairs director for the National Association of Workforce Agencies in Washington, D.C.

“In terms of escalating taxes, this is going to be an issue that’s getting a lot of attention. … It’s going to be a major issue with state legislatures,” said Katz.

Katz said a variety of proposals are pending in Congress, including simply forgiving the state debts because of the severity of the recession. But he said the federal government has its own financial issues.

“It’s unclear what will happen because there’s also intense focus on the (federal) deficit,” said Katz.

Not unprecedented

Illinois resorted to borrowing during a recession in the early 1980s, when at one point the unemployment trust fund was $2.3 billion in the red. The borrowing also resulted in a series of reforms in 2003 that set up the current system.

The same trend occurred in 2009, said Rivara.

“We were in positive territory when 2009 started, and we were in negative territory when 2009 ended,” he said.

The balance has since rebounded to about $481 million, though Rivara said that is primarily because employers pay the bulk of withholding taxes in spring and summer. The state could be forced to borrow again, he said.

Illinois has not yet begun to repay the federal loan, and Rivara said the state could pay as much as 4 percent interest on the balance if the interest exemption expires in January. He said states also could be penalized in other ways, including federal incentives for business, if the money is owed for more than two years.

Tim Landis can be reached at 217-788-1536.

Largest state loans to date

* California: $7.477 billion

* Michigan: $3.814 billion

* New York: $3.176 billion

* Pennsylvania: $3.008 billion

* Ohio: $2.134 billion

* North Carolina: $2.289 billion

* Illinois: $2.239 billion

Source: National Conference of State Legislatures

End-of-year unemployment trust fund balances in Illinois, 2005-2009

* 2009: $8.974 million

* 2008: $1.456 billion

* 2007: $1.801 billion

* 2006: $1.280 billion

* 2005: $488.3 million

Source: Illinois Department of Employment Security

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